American International Group Inc. swung to a third-quarter loss as the bailed-out insurer wrote down the value of units it is selling and took charges tied to repaying rescue loans.

The net loss of $2.4 billion compares with profit of $455 million a year earlier, the New York-based firm said today in a statement. The adjusted net loss, which excludes some investment results and businesses being sold by the company, was $200 million.

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U.S. Treasury Secretary Timothy F. Geithner’s plan to recoup taxpayer bailout funds is increasingly dependent on the stock price of insurers American International Group Inc. and MetLife Inc.

The government’s stake in AIG will rise to 92 percent from about 80 percent under the revision to the New York-based insurer’s rescue announced yesterday. The Treasury Department must find buyers for $49.1 billion in AIG stock and $8.7 billion in MetLife equities starting next year.

“There are a lot of ‘ifs’ for the government to be able to rapidly exit all this common stock,” said Clark Troy, senior analyst at Aite Group in Chapel Hill, North Carolina. “If all the stars are aligned, if the perception of double-dip risk is cleansed from the system, if you get better pricing in the property-casualty markets, it may work.”

AIG, once the world’s largest insurer, turned over a majority stake to the U.S. in 2008 amid a rescue that swelled to $182.3 billion. The exit plan converts the government’s preferred stock into 1.66 billion common shares for sale on the open market and taps a Treasury facility for as much as $22 billion to retire Federal Reserve bailout vehicles. Mark Paustenbach, a Treasury spokesman, declined to comment.

For Treasury to break even on its $49.1 billion investment in AIG stock, the shares must be sold for almost $30. The company traded below that level for more than two months this year, reaching a low of $22.15 on Feb. 8.

When to Sell?

The U.S. sales will happen in phases over 18 months to two years starting in 2011, said a person with direct knowledge of the Treasury plan. The length of the sale period was meant to avoid flooding the market with AIG shares, said the person, who declined to be identified because details of the strategy are confidential. Investors will also receive warrants with a $45 strike price to dissuade them from dumping shares.

AIG rose $1.65, or 4.4 percent to $39.10 in New York Stock Exchange composite trading yesterday and has gained about 30 percent this year. It slipped 4.5 percent last year and plunged 97 percent in 2008.

Proceeds from the sale of two non-U.S. life insurance divisions, American Life Insurance Co. and AIA Group Ltd., will pay down the approximate $19 billion owed on AIG’s Fed credit line. MetLife has said that its purchase of Alico is “on track” to be completed on Nov. 1. AIG may hold an initial public offering for AIA in October.

‘Important Asset’

MetLife agreed to pay $6.8 billion in cash and $8.7 billion in securities including stock to buy Alico. The total deal was valued at $15.5 billion, based on the March 5 MetLife share price of $38.92. The stock closed yesterday at $38.45.

MetLife shares obtained in the sale “are an important asset” that “will be part of the architecture” of AIG’s deal to repay the U.S., AIG Chairman Steve Miller said in a Sept. 29 interview. The securities, previously committed to the Fed, will go to the Treasury.

Treasury may not receive all of the MetLife securities because $3 billion will be put in escrow to indemnify the buyer from potential costs tied to Alico. MetLife can recover some stock if Alico’s Japanese commercial real estate holdings decline and there are legal claims and regulatory fines tied to European funds in which client withdrawals were suspended.

“While there is a lot of work ahead to execute the terms of this agreement, today we are much closer to seeing a clear path out,” Geithner said yesterday in a statement. The exit strategy “puts taxpayers in a considerably stronger position to recoup our investment.”

 

TARP Estimate

If the government breaks even on AIG’s bailout, a recent $105 billion cost estimate for the Troubled Asset Relief Program would be reduced by about half. Geithner said last week that the U.S. would “largely get the taxpayers’ money back” from the $700 billion

TARP fund.

AIG’s existing common shareholders, who hold about 20 percent of the company, will have their stake diluted to about 7.9 percent, AIG said yesterday. Those investors will receive as many as 75 million warrants.

The company’s managers “strongly believe, given how powerfully AIG and its businesses have rebounded” that the firm will repay the U.S. at a profit, Miller and Chief Executive Officer Robert Benmosche said yesterday in a letter to staff.

Treasury invested about $47.5 billion in AIG buying preferred stock, and the insurer owed $1.6 billion in interest. Based on that investment, the conversion would give Treasury shares at $28.70 each. AIG was allowed to skip interest payments starting last year as part of its fourth rescue.

AIG was first rescued in September 2008 by the Fed after trading partners demanded payments on derivatives contracts. After three revisions, the firm’s lifeline included the $60 billion Fed credit facility, a Treasury investment of as much as $69.8 billion and up to $52.5 billion to buy mortgage-linked assets owned or backed by AIG.

Robert Benmosche, the American International Group Inc. chief executive officer who replaced the head of the insurer’s main Asia unit, said the change was needed to prepare for the division’s initial public offering.

Mark Tucker was named head of AIA Group Ltd. today, replacing Mark Wilson, 43. Tucker has 15 years of experience building the Asia operations of competitor Prudential Plc, Benmosche told employees today in a letter obtained by Bloomberg. AIG is proceeding with an IPO of the Hong Kong-based business after a $35.5 billion agreement to sell AIA to Prudential collapsed in May.
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American International Group Inc., recipient of the first and the biggest of U.S. insurer bailouts, will become the last carrier with public funds now that Lincoln National Corp. plans to repay its rescue.

AIG Chief Executive Officer Robert Benmosche, who promised taxpayers full redemption and a profit, is selling units and counting on a revival at the businesses that remain. His stewardship got a vote of confidence from Federal Reserve Chairman Ben S. Bernanke on June 9, while the following day Congressional Oversight Panel Chairman Elizabeth Warren said taxpayers were still saddled with “a lot of risk.”

“They’re going to owe their ability to repay the taxpayer to capital-market conditions that are not in the hands of Robert Benmosche or Ben Bernanke,” said Bill Bergman, an analyst at Morningstar Inc. in Chicago.

Lincoln plans to sell shares and notes to fund repayment of its $950 million in aid, the Philadelphia-based insurer said today. AIG owes about $26.6 billion on a Fed credit line and $49 billion to the Treasury. Its bailout, which dates from September 2008, swelled to as much as $182.3 billion.

“AIG remains committed to repaying the taxpayer,” Mark Herr, a company spokesman, said today in an e-mailed statement. Herr cited Benmosche’s testimony on repayment before Warren’s committee last month, when the CEO said “AIG will do so with interest.”

Emergency Aid

Lincoln and Hartford Financial Services Group Inc., the Connecticut-based carrier that repaid $3.4 billion in U.S. aid in March, won relief funds in 2009 after appealing to Treasury for the same support offered to banks during the 2008 financial crisis. Emergency funds for New York-based AIG were provided a day after the Lehman Brothers Holdings Inc. bankruptcy to protect the insurer’s trading partners.

“Except for AIG, every other major institution has repaid, with interest and dividends,” Bernanke told the House Budget Committee. “And AIG, I believe, will repay.”

Lincoln Chief Executive Officer Dennis Glass is focusing on U.S. insurance operations after striking deals to sell a U.K. business and an asset manager. Last year, Lincoln reduced the workforce by 15 percent to 8,208 employees.

“We ended the year in a strong capital position, and our first-quarter results reflected the strength of our business model,” Glass said in the statement. “We appreciate the critical role the government and the American taxpayers have played in stabilizing the financial markets.”

Prudential Plc’s (PRU.L) bid for rival AIG’s (AIG.N) Asian unit was close to collapse after the British insurer failed to secure a price cut, triggering talk it might itself become a takeover target.

Tidjane Thiam, Pru’s ambitious new boss, had faced rising shareholder discontent over the agreed $35.5 billion cost of buying American International Assurance (AIA), forcing the 47-year-old to ask for a $5 billion reduction.
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American International Group Inc., the bailed-out insurer, remains in negotiations to salvage the sale of its main Asia unit after Prudential Plc requested a lower price to win shareholders’ approval.
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